CASE STUDY: Medical Services & the R&D Tax Credit

CASE STUDY: Medical Services & the R&D Tax Credit

The medical services industry is an essential component of the U.S. economy that provides medical and health services to families and individuals, is responsible for safeguarding the health of the Nation and its citizens, and offers continuous medical innovation in the marketplace that that leads to a healthier population. Innovation and the ever-changing landscape of medical treatment protocols have long been considered a cornerstone of growth for the industry, leading to new products and processes, including new treatment applications, new medical devices, and new treatment protocols. In addition, most doctors and medical professionals continue to evolve and grow in innovative methods and procedures resulting in improved outcomes for patients over time.

Many businesses within the medical services industry, including doctors, research scientists, hospitals, clinics and many other types of medical professionals, routinely develop new or improved proprietary treatment protocols, medicines, diagnostic methods that improve over time; experiment with new approaches for improved treatment delivery systems and approaches; modify and experiment with new surgical methods; develop novel and improved methods of delivering quality healthcare to their patients. Numerous activities associated with these initiatives will qualify for the research and development (R&D) tax credit, often an overlooked and misunderstood opportunity for taxpayers.

This article is aimed at medical professionals/taxpayers who are involved in qualified research activities and want to minimize their tax liability. It will discuss the definition, history, and recent developments of the R&D credit. Also, it describes examples of product and process improvements within the medical services industry that satisfy IRS guidelines for R&D credits. What Qualifies as R&D?

We have found many of our medical professional clients discover that over time, the diagnostic and health delivery protocols they use today may not have even existed 5 or 10 years ago. While physicians and other health care institutions and professionals may feel that they are “just doing my job,” while in fact, they have been performing R&D qualifying activities all along.

If your medical practice or other healthcare-related profession is involved in any of the following activities, you may be able to claim the R&D Tax Credit:

? Developing a unique diagnosis for a particular patient

? Engineering and designing a new medical product or approach

? Conducting research aimed at discovering new knowledge

? Searching for ways to apply new research findings for a specific patient

? Designing and considering diagnostic alternatives

? Evaluating product and medicine/Rx alternatives for a patient

? Developing or designing a treatment protocol for a specific patient

? Designing, constructing, and improving a treatment facility or hospital

? Continuously monitoring a patient's health and making changes to his/her protocol over time.

The Medical Services Industry and the Research and Development Tax Credit

? Utilizing systems processing modeling

? Conducting system and functional requirements analysis

? Utilizing integration analysis

? Experimenting with new technologies

? Experimenting with new material and integrating the material to improve the medical delivery process

? Engineering or computer research to evaluate new or improved specification/modifications in terms of performance, reliability, quality, and durability

? Developing new production processes during prototyping and preproduction phases

? Conducting research aimed to significantly cut a medical product’s time-to-market

? Conducting research aimed to obtain more efficient patient outcomes

? Developing and modifying research methods / formulations / products

? Paying outside consultants / contractors to do any of the above activities

Why Should My Medical Practice/Business Conduct an R&D Study Now?

The U.S. offers some of the world’s richest R&D tax incentives, but chances are you’re not taking advantage of them and getting the cash you deserve. As the pace of your medical practice/business/ clinic/hospital/research facility accelerates and competition increases, you may be more likely to overlook this source of cash because you lack the time, resources or expertise needed to identify and manage R&D Tax Credit claims.

Prior to December 2001, the requirements necessary to qualify for the R&D Tax Credit were rather difficult to obtain. However, in December 2001, the Bush administration issued IRS regulations which facilitated a company’s ability to qualify for the R&D Tax Credit.

The new regulations are in harmony with the intent of Congress and are much more taxpayer-friendly. They reflect a profound change in the position of the IRS. The new regulations:

? Make it easier for a broader array of companies to qualify their activities as R&D

? Provide greater flexibility in certain recordkeeping requirements

Benefits Realized

? Realized millions of dollars of tax credits, resulting in cash back from the IRS

? Permanent tax savings and financial statement benefit

? Created a vehicle to realize additional tax savings in future years

? Increased the market value, earnings power and cash flows of their medical practice/business

? Lowered the medical practice/business’ effective tax rate

Despite these positive changes to the R&D tax credit, claiming the credit remains one of the most challenging provisions of the tax code. Thus, it is recommended that medical practices/businesses should consider engaging a tax professional with R&D tax credit expertise to help them qualify for and claim this beneficial credit. Business Incentive Solutions, the tax team that we work with has a broad range of experience assisting a vast range of industries. In the last 15 years, they have helped over 5,000 businesses get back the money they deserve.

Contact us today to learn more about the R&D Tax Credit

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